Q&A with Rong Chen: Addressing Questions from the Community

Founder Rong Chen recently spoke to the Chinese Telegram community about concerns over speculative statements currently circulating online. This weekend, he provided a series of answers to address similar concerns for the Western community.

Can you take us through the process for the private and public sale? Were there secret sales of ELA after the Official Private Sale Period? Did the ratio change for private investors? Why was there a public sale? Did you promise there would not be one?

Let’s start at the beginning to be absolutely clear and to put an end to this false narrative circulating online. In July and the first half of August of 2017, we did two things: we wrote our first whitepaper, and we had our angel investment sale. Our plan from the beginning was to have our main net live in December.

Next, we scheduled our private investment sale for the ten day period of August 10th to August 20th, 2017. At that point, we announced that we would raise at least 1000 BTC for Elastos by selling 2 million ELA. We also stated that if we did not receive at least 1000 BTC, the sale would not happen at all. If we did raise just 1000 BTC, the ratio of BTC:ELA would start at 1:2000. This ratio was subject to change, based on the demand we received back then.

Within two days we received bids of more than 2000 BTC. We then announced that we would hard cap the ratio at 1BTC:1000ELA and that the ratio could not become less no matter what. At the end of the ten days we received roughly 6000 BTC worth of indicated demand. However, the actual amount transferred to us was about 4300 BTC and we sold about 4.3 million ELA. The ratio became 1:1000. This was the hard cap amount everyone was told.

In early September, I was on a train when I heard the news that the Chinese government had banned all ICOs in China. The price of BTC started to go down that week because of this news and many of our private sale investors were scared at the ban and its influence on ELA. We understood that this regulation was not something any of us were prepared for and therefore, we offered to refund and return their BTC after January 1, 2018.

While many expressed concerns, very few investors wanted to pull out and roughly over 300 BTC were returned. We went from about 4300 BTC to about 3900+ BTC. This was not enough BTC to change the ratio and I had made that clear.

At the same time, many investors who could not participate in the private sale, which was then closed, wanted to take those vacant spots of the investors who had pulled out. I started to get messages from interested parties and started a WeChat group to hear their interest. However, people in the WeChat group took screenshots of our conversations and spread them online. The private sale investors used this information to make demands and put pressure on us. We then decided to close the WeChat group and not allow anyone to take the vacancies. The ELA quota returned from those vacant spots was part of the ELA burned at the One Year Anniversary in August 2018.

With the December main net scheduled and an ICO ban in China that we were not aware of back in July, we realized that a public sale in China was not possible. We always planned for Elastos to be a global project. And our original plan was to allow international investors to purchase ELA on exchanges, but we understood that we would also need an international public sale.

Around the end of 2017, we announced there would be a public sale open to anyone except Chinese citizens. We announced the ratio would be 1:800 BTC:ELA, partially due to that fact that the BTC price had gone up substantially since September, which made ELA much more expensive to purchase for international buyers. Many private sale investors were upset that this ratio was too close to theirs.

With mounting dissent from some private sale investors and the regulatory uncertainty in China as a backdrop, we decided that to show support for their investment and continued trust in ELA, we would give them a bonus and increase their ratio to 1:1500. The additional 500 would be locked and released in August of 2018. The August unlock was that bonus. The private sale accounts for the roughly 4 million ELA the private sale investors had from the sale, plus the 2 million, or 50% bonus that got released in August.

The public sale of ELA for the international community took place over the month of January. From whitelist registration to two rounds of KYC to three rounds of distributing the 2 million ELA allocations. BTC and NEO were transferred to the Foundation by the last week of January and we then transferred ELA to the contributor’s on January 31st. We were listed on the Huobi exchange the next day.

At around this time, we were advised that a lock-up of ELA was a good thing that would show support for the project. We knew of other projects that had lock-in mechanisms and had no clear information that they could be seen as incompatible with western exchanges at the time of our decision. We offered a 1, 2, or 3 year option. This timeframe was chosen because I believed, and still believe, that the new internet we are building would take 2-3 years and people would need them to use as a utility token when it has more use cases. This program was a bonus and more of a privilege. However, our decision to end the program has led to some people in the community becoming upset as if it is a right. What they are failing to see is how ending the program is in their best interests as well.

This narrative of secret sales and ratios changing is a false narrative that has been going on for over a year. It was never true and comes from a few investors who think their pressure and demands can force us to give in to them.

Why did you not give the 16m ELA to BTC holders in the form of an airdrop and instead give it to Cyber Republic? Why will you not burn the 16m ELA instead?

First of all, while the first whitepaper did state a plan to airdrop ELA to BTC holders, it certainly never stated anything about burning ELA. Burning 16m ELA is not my decision, or any one person’s decision, it will be the decision of Cyber Republic. That 16m ELA will go to Cyber Republic and it will not be touched until after August 2019 when a new Council is decided democratically. The future CRC, democratically elected by our community, can decide whether they want to burn or offer a public vote for burning their fund of 16m ELA. Feng Han also strongly agrees that the unlock will contribute to a fair voting process, should it be necessary for future significant decisions regarding CR.

The initial plan for the 16m ELA was to airdrop to BTC owners. And the ELA that couldn’t be airdropped through exchanges would go to the Elastos ecosystem fund. In accordance with this, we did airdrop ELA to BTC holders – about half a million ELA were airdropped to BTC holders on Huobi in February of 2018. But executing the plan became increasingly unrealistic for several reasons. First of all, many BTC wallets are held by people who have lost their keys and can no longer access those wallets, rendering airdrops to those addresses pointless. Second of all, all exchanges we knew in China were closed due to the September 4th incident.

Third of all, we were not on enough exchanges in February when we airdropped. If you do not airdrop all 16m at the same time, people can merely move their BTC around to take advantage of this. And finally, exchanges made it clear that they could not open their books for us as it involves their confidential information, in which case, we would have no way of being sure that the ELA we gave them actually was all airdropped to BTC holders. But on the other hand, we have to do it through exchanges because Elastos main chain is not a fork of BTC blockchain, and we could not possibly find all BTC holders ourselves. So we were caught between a rock and a hard place.

In December of 2017, in our second whitepaper, we stated that 16m ELA would be used for ecosystem development. This was not too much of an issue in January until the Viewchain incident at the Anniversary Event in late August 2018. Some private investors were angry at this decision because they wanted to control the supply of ELA because they felt that 16m ELA was a big number that could cause corruption. It was only at this point that they reverted their stance back to the first version of the whitepaper and claimed that the second whitepaper was not faithful to the original one.

They proposed that we should burn the 16m ELA to lower the supply and help them instead of the development of the project. Clearly, that was not a rational move because building up the Elastos community and ecosystem globally is way more important and helps to build value for ELA. The success of the project depends on the success of the ecosystem and the number of uses onboard. This is what drives true long-term value for ELA.

However, the issue caused many more ELA token traders to get excited and get onboard the bandwagon of burning the 16m ELA, as they feel that reducing the number of tokens would potentially drive up the ELA price, helping to mitigate the downward pressure on price due to the prolonged bear market environment.

I could see that burning the 16m would have been beneficial for the short-term misguided advantage of a few, but I strongly believe that it would be in the best interests of the project if the tokens were utilized for ecosystem development, administered through Cyber Republic.

Why was a 10k ELA lock-in group promised the ability to be on the Council for the ecosystem development fund, yet when the Cyber Republic Council was formed, they were not included?

There is a 10k ELA lock-in group on WeChat. Many of these people come from the private sale. Before Cyber Republic was ever conceived of, the notion of this group having an influence and the ability to run for council on the ecological development fund was spoke of in this chat group. Feng Han and I also discussed related issues with some of them individually about people who have 10k or have 10k behind him/her could send in a proposal or having his/her name put on a ballot. Discussions were held in consideration of these investors so that they could have a say in project developments but nothing was ever set in stone.

In reference to the Medium article on February 9, it was a premature idea to share tentative details of governance with the public. Being a startup, governance and many other details are bound to change and form over time depending on which ideas best serve the interests of the project, community and ecosystem. Even as per the initial idea of the Oversight Committee, it was intended that these 10k holders would be invited to join and have the right to participate in the elections. However, that does not mean that they are automatically council members. None of these people were ever promised a spot on the ecological development fund council or Cyber Republic Council because council members have to be democratically elected.

Once Cyber Republic was conceived of and agreed upon to be a democratic ecosystem that Elastos foundation did not control, this notion of allowing only investors with 10k ELA or ones with equivalent votes to be delegates did not seem to be the best proposition. Cyber Republic interim council has published the draft of Cyber Republic Constitution and articles about voting procedures etc. for public comments. Of course, we also invited the leaders of the 10k group to join the Cyber Republic discussions. We also encouraged some leaders to run for council members in the future. I believe that everything at this point is not final and still in the feedback-seeking stage, but I am not in the loop of compiling Cyber Republic constitutions.

Elastos Foundation chose to appoint three Elastos employees as interim Council members until we are set-up to have a full election in the second half of 2019. Until that democratically elected Council is formed, the 16m will be placed in an announced address for public supervision.

Have there been any under the table dealings with ELA?

In one word, no. I worked through Microsoft in the 90s and I have worked on Elastos for 18 years. With Elastos, my goal is to build a new Internet, increase transparency, rebalance the wealth inequality and enable people to create value for themselves. That is a reflection of my passion and beliefs. My integrity and character is everything to me. And I have ensured that this is the same with Elastos’ dealings as well. I do not appreciate it when people question my integrity without proof. To the best of my knowledge, I believe Elastos is one of the cleanest blockchain projects.

Can you reveal your books, are you open to auditing?

Every six months we have an audit for Elastos funding. We had one in June and we revealed the metrics at the One Year Anniversary. The next one will be in December 2018. We welcome the community to nominate representatives with relevant financial background and licences to attend our audit meetings.

Did Viewchain sell any ELA?

We invested in Viewchain using our ecological development fund, the idea that preceded Cyber Republic. At the anniversary event in Chiang Mai, a representative from Viewchain did admit to selling some of their ELA which should have been locked. We did an audit for this incident and we found that they did sell and gain some profits. The profits they made was less than 10% of the exaggerated amount spreading in the community currently.

We communicated our dissatisfaction to Viewchain and had a discussion with them. They expressed their regrets and agreed to stand by us and our partnership. In addition, Viewchain vowed to bring at least one million users to Elastos by the end of 2018 (as per their announcement: https://viewchain.org/2018/09/20/viewchains-statement-on-cooperation-with-elastos/) and not to touch their ELA holdings until then. Despite their actions, we decided to move passed the incident, accept their apology and continue with our partnership for the betterment of Elastos. Elastos is my life’s work and every decision I have taken is with its best interests at heart.

But again, we openly welcome professional community representatives to attend our audit meetings. Cyber Republic now controls those funds and the future of ELA investment is up to the community.

Have you ever sold any ELA?

I have never sold any ELA, and I don’t even have a fiat currency account on an exchange. As I have mentioned several times, some of my friends and I continued buying ELA even though the price went down.

Regarding the angel investors, I assure you Jihan Wu and Feng Han and I have never sold any ELA we got from the angel investment phase. All of those coins are still locked. Feng has also contributed 5M USD to MIT labs and some of that money is to research the ELA economics model, and none of the money came from the sale of ELA.